External Debt or Tax Revenue: Reason for Inflation in Pakistan during Economic Downturn

Abstract

Abstract

Purpose: The study has intended to determine that either external debt or tax revenue is the reason for inflation in Pakistan.

Method: Annual time-series balanced data from the year 2002 to 2021 have been analysed using unit root, cointegration, and OLS analyses. The study was carried out in Pakistan.

Results: The research identified that external debt has an insignificant and negative relationship with inflation, while, tax revenue has a significant and positive relationship with inflation. In order to successfully develop the economy and reduce inflation, the government should consistently take steps to enhance the performance of each economic sector. As a result, it is essential to design policies and strategies to develop these sectors since they serve as the foundation for driving the economy and maximizing TR opportunities.

Novelty: Data on Pakistan's external debt, tax revenues, and inflation are inconsistent, change over time, and vary by location. Further in-depth information is required to fully comprehend the link between these factors.